Liberty Bank is voluntarily settling a lawsuit by fair lending advocates that alleged racial bias in its home mortgage practices. (Kevin George/Getty Images/iStockphoto)

Middletown-based Liberty Bank — accused by fair housing advocates of discriminating against home loan borrowers in African-American and Latino neighborhoods — is settling those claims by boosting its outreach to those borrowers, including increasing by $10 million a mortgage program targeted at low- and moderate-income communities.

The outreach will include working with the Connecticut Fair Housing Center in identifying neighborhoods within Liberty’s market that could benefit from the expanded lending programs.

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The fair housing center Monday hailed the commitment as a “very significant settlement” with the potential to make a difference in neighborhoods that have been largely ignored by traditional lenders.

“This is an agreement that is a significant step in that direction where we have one of the major banks in Connecticut investing in communities where a lot of the people that we represent live,” Erin Kemple, executive director of the fair housing center, based in Hartford, said.

Under the agreement announced Monday, Liberty Bank will expand its Good Neighbor Mortgage Loan Program, making an additional $10 million available to borrowers at below-market mortgage rates. In addition, it will set aside $300,000 in subsidies to promote home ownership and access to credit in neighborhoods where it has been difficult to secure a mortgage; and the bank pledged to open a new loan production office in Hartford.

The agreement comes after the Connecticut Fair Housing Center and the National Consumer Law Center last fall filed a lawsuit alleging the bank violated the Fair Housing Act by “redlining” — denying to provide or avoiding giving credit to borrowers because of the racial or ethnic demographics of the their neighborhoods.

In reaching the agreement, Liberty Bank denied any wrongdoing. However, the two sides reached the agreement voluntarily, resolving the court case.

In addition to the boost in home lending, Liberty Bank will expand its community development loan program by $5 million over the next three years to promote community service, economic development and affordable housing projects in low- and moderate income neighborhoods. The program will be supported by another $200,000 in grants to qualifying organizations in those neighborhoods.

This is an agreement that is a significant step in that direction where we have one of the major banks in Connecticut investing in communities where a lot of the people that we represent live.

Erin Kemple, executive director, Connecticut Fair Housing Authority

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Kemple said a location for the new loan production center has not been determined, but she hopes it will be in the “Promise Zone" in North Hartford, though finding a good site will require a selection near public transportation. The loan office will not only handle mortgages, but it will give city residents more access to basic banking services, such as opening a bank account or cashing a check.

Chandler J. Howard, president and chief executive of Liberty Bank, said the bank “decided early on that rather than expend our resources debating the allegations, it would be better for everyone if we came together voluntarily and work together to come up with a program that will ultimately serve both our interests. And that’s what we did."

Howard was initially scheduled to retire from his post as chief executive of Liberty at the end of last year. But Howard said Monday he stayed on to see through the agreement with the fair housing center.

“This is something that I feel very strongly about, and I felt I could be very helpful in getting this really innovative program launched and off-and-running,” he said.

This is something that I feel very strongly about, and I felt I could be very helpful in getting this really innovative program launched and off-and-running.

Chandler J. Howard, president and chief executive, Liberty Bank

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Kemple praised the agreement with Liberty and noted that more banks should take similar steps to “launch their own initiatives to promote homeownership and address the need to expand fair and nondiscriminatory access to credit.”

The fair housing center’s lawsuit against Liberty, filed Oct. 4, came after a two-year investigation that looked at lending data reported by the bank to regulators and at “testers” sent into branches to apply for loans.

During the period evaluated by the fair housing center — 2010 to 2016 — the lawsuit alleged Liberty originated, on average, just 40 home loan applications to African-American and Latino borrowers out of a total of 1,197 originations a year, a little over 3 percent.